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HCCL 15/2013
IN THE HIGH COURT OF THE

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HONG KONG SPECIAL ADMINISTRATIVE REGION

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COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 15 OF 2013

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BETWEEN

LEIGHTON LLC

Plaintiff

and
MONGOLIA ENERGY CORPORATION LIMITED Defendant

--------------------------Before: Hon Bharwaney J in Chambers (Open to public)

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Date of Hearing: 10 July 2013

Date of Decision: 10 July 2013
Date of Reasons for Decision: 30 September 2015

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---------------------------------------REASONS FOR DECISION

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1. In this action the plaintiff (Leighton) claims payment from the

defendant (MECL) under a written guarantee dated 2 June 2010.

It is not disputed that a demand for payment of 12,162,710,117 MNT
(Mongolian Tugrik) was sent by Leighton to MECL. This was the

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plaintiffs application under Order 14A for my determination by way

of construction of the guarantee: the plaintiff contending that it was
an on demand bond or guarantee and the defendant contending that it

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was a true guarantee where the guarantors liability was dependent

upon the liability of the principal, MoEnCo LLC (MoEnCo), a
subsidiary of MECL, such that MECL could rely upon all the

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defences that would be available to MoEnCo under the principal

agreement. The parties were agreed that proceeding by way of an
application under Order 14A was correct. If I found in favour of the
plaintiff, they would be entitled to Order 14 judgment for the amount
in question; and if I found in favour of the defendant then, although
the action would have to proceed to a full trial, I would have made a
final determination of this issue under the Order 14A application.

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2. After hearing the parties, I concluded that the guarantee in

question was a traditional type of guarantee under which the liability
of the guarantor was dependent on the liability of the principal. I
stated that I would give my reasons in due course. I also granted the

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plaintiff leave to withdraw its Order 14 application.

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3. These are my reasons for my decision. I have not handed down

my reasons earlier because on 10 October 2013 and again on

20 December 2013,

made

orders

by

consent

staying

the

proceedings to enable the parties to resolve the matter by mediation.

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Thereafter, I heard nothing further from the parties until 12 June

2015 when I received a letter from the solicitors for MECL
requesting me to hand down reasons for my decision, which I now

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do.
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4. The guarantee in question, entitled Company Guarantee

(company guarantee) is set out in full in Appendix I to this

judgment.

5. The authorities relevant to the proper construction of this

guarantee are summarised in Appendix II to this judgment.

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Leightons Submissions
6. Mr Denis Brock, who appeared for the plaintiff, submitted that on
its true and proper construction the company guarantee was a
performance bond. He referred me to the relevant authorities on on
demand guarantees and on the construction of contractual
documents, before identifying the factual background giving rise to

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the company guarantee.

7. He submitted that there was considerable commercial risk to
Leighton

under

its

agreement

with

MoEnCo

(the

mining

agreement) and he highlighted the following factors, all known to

the parties at the time of the company guarantee, which were

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relevant to my consideration:
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(1)

Under the mining agreement, Leighton was responsible

for providing all resources, a significant investment, but
was to be paid by MoEnCo on a monthly basis in

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advance;
(2)

MoEnCo was a newly constituted shell company, a

special purpose vehicle, constituted for the sole reason
that MEC, MoEnCos 100% owner, could not by itself

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own and operate a mine in Mongolia (as it was not a

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Mongolian company);
(3)

The work was to be carried out in a remote part of

Mongolia, 1350 km from Ulaan Bataar;

(4)

The

mining

agreement

included

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provision,

in

Clause 15, whereby MoEnCo had up to 7 years after the

termination or expiration of the mining agreement to

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require Leighton to repay any overcharged amount on its

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Progress Claims; and

(5)

It was a normal course within the construction industry

to

use

performance

bonds

to

secure

contractual

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obligations.
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8. At 8 to 11 of his first affidavit, Mr Paul Kimberly, the General

Regional Manager of Leighton, explained how the agreement
worked:

The Mining Agreement between Leighton and MoEnCo was

executed on 2 June 2010. The Mining Agreement provides that
MoEnCo is the Principal and Leighton is the Contractor for the
purposes of the Agreement. In accordance with the terms of the
Mining Agreement the Claimant was obliged to provide
resources comprising personnel, plant, vehicles, appliances and
other equipment with the objective of performing the mining
operations as referred to therein. Further, the Mining Agreement
was essentially a cost reimbursable contract from the Claimants
perspective, with its performance thereunder being measured by
reference to what were referred to as Key Performance
Indicators which were set out in Appendix 3 to the Mining
Agreement
Clause 7 of the Mining Agreement contained the payment
procedure under the Contract.
Sub-Clause 7.1 provided that Leighton was required to submit an
Estimated Progress Claim on the 20th day of every Monthly
Period for the works to be performed in the following Monthly
Period. For example, an Estimated Progress Claim would be

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submitted on 20th January in relation to work to be carried out in

the month of February.
Thereafter, MoEnCo was required to pay all amounts owing
under the Estimated Progress Claim (for the next Monthly
Period) by the last day of the current Monthly Period.
Continuing with the example that I have set out above, the
Estimated Progress Claim issued on 20th January in relation to
work to be carried out in the month of February was due to be
paid by MEC to Leighton on 31st January.

9. MoEnCo was a special purpose vehicle created to comply with the

requirement in Mongolian law that natural resources are exploited by

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Mongolians.
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10.

Mr Brock also referred to 14 of the second affidavit of

Mr Kimberly, where he stated:

Pursuant to the terms of the mining agreement, Leighton was
responsible for the provision of all equipment and personnel
relating to the mining operations, requiring significant
investment of resources in a remote location. Leighton, as a
highly experienced mining contractor, would never enter into an
arrangement with another party that clearly had insufficient
resources to guarantee its payment obligations without
watertight security (that could be drawn upon immediately)
being provided in consideration of Leighton entering into the
arrangement

At 17, Mr Kimberly explained that:

MoEnCo is a 100 per cent fully foreign invested company
wholly owned and funded by MECL. It was against this
background that Leighton demanded a performance bond be
provided by MECL, which is listed on the stock exchange with
significant assets. The security of a performance bond provided
by MECL was critical before Leighton entered the mining
agreement.

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11.

Leighton was seeking advance payments from MoEnCo

and that mechanism broke down when MoEnCo failed to keep up

with that programme and, ultimately, the contract came to an end.

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As relatively recently as February 2012, Leighton was indicating to

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MECL the financial difficulties that Leighton was being put under by
MoEnCos default.

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12.

Mr Brock referred me specifically to 31-32 of

Kimberlys second affidavit:

On 2 June 2010 a meeting with the board of directors of MECL
was convened at MECLs offices in Hong Kong at which the
draft mining agreement and draft Company Guarantee were
tabled for discussion. Minutes of the meeting provided to
Leighton.
The main terms of the mining agreement were summarised in the
minutes. Specifically in relation to the company guarantee, the
following was recorded on page 2 at paragraph 2 of the minutes:
The company is also required to provide a performance to
Leighton on behalf of MoEnCo LLC.

13.

Mr Brock submitted that it was self-evident that the word

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bond has been omitted. To give the sentence any sense and against
the factual background, it should read:
The company is also required to provide a performance [bond]
to Leighton on behalf of MoEnCo.

But even if, as was contended by MECL, the word omitted was not
bond, but guarantee that did not take it any further because a
performance bond or a performance guarantee were of the same
nature.
14.

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The mining agreement provision which spoke of the

provision of the company guarantee stated:

On or before the date of this agreement the principal will
deliver to the contractor a company guarantee for the benefit of
the contractor in the form set out in Appendix 4 from the
guarantor to the guarantee to guarantee the performance of the
principal and its obligations under this agreement.

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Appendix 4 was the draft of the company guarantee.

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15.

Under the company guarantee, MECL:

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guarantees to Leighton as a primary obligation the due

payment and performance by the principal of all MoEnCos
obligations and liabilities under and arising out of the mining
agreement, including the principals compliance with all its terms
and conditions according to their true intent and meaning.

This was the important express statement that the obligation of

MECL was a primary obligation and a contractual obligation to make
payment on demand.

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16.

The maximum aggregate liability clause stated that:

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The maximum aggregate liability of the guarantor under this

guarantee shall not exceed the maximum aggregate liability that
the principal would have under the mining agreement if each and
every provision of the mining agreement were valid, binding and
enforceable in accordance with its terms (whether or not this is
the case).

This clause indicated that this was a performance bond because it

asserted the presumption that MoEnCos obligations exist as if each

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and every provision of the mining agreement were valid and binding,
whether or not this is the case. This was a powerful indication that
this was designed to be an independent instrument, independent of

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the underlying contractual arrangements.

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17.

Mr Brock referred to Law of Guarantees, (6 th ed), by

Andrews and Millett it was stated at 6-002:

The most important aspect of the nature of a guarantors
liability as a secondary liability is that it is coextensive with the
liability of the principal. This means that as a general rule, the
suretys liability is no greater and no less than that of the
principal, in terms of amount, time for payment and conditions
under which the principal is liable.

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If this instrument were a mere guarantee, the co-extensiveness

principle would be implicit within it. The fact that there was an
insertion of the clause that specifically told one to ignore the

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underlying obligations suggests that it was not a guarantee.

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18.

Another provision of the guarantee stated:

This guarantee is in addition to any other security which the
contractor may at any time hold and may be enforced without
first having recourse to any such security or taking any steps or
proceedings against the principal.

In short, there is no contractual requirement for Leighton to first sue

MoEnCo, before it could proceed directly against MECL because the
latters liability was primary and not a secondary liability.

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MECLs Submissions
19.

Mr Ian Pennicott appeared together with Ms Catrina Lam

on behalf of MECL. He emphasized that the court must look at the

whole of the document and not just isolated parts of it and that, if

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there was any ambiguity then those ambiguities were invariably

resolved in favour of the surety.

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Factual Background
20.

He accepted that the court in interpreting a document

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could look at the factual matrix but he submitted that there were two
strands to this. The first strand was the general relationship and the
position of the parties at the time that they entered into the contract:

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the underlying commercial transaction involved the extraction of

coal in the minefields of Mongolia. There was no dispute that

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Leighton would want some form of security in those circumstances,

because Leighton was putting in plant and equipment and, from a
commercial angle, would want some form of security. However, such

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a need was equally consistent with the provision of a parent

company guarantee as it was with a performance bond.

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21.

The other factual background was the mining agreement

itself. Clause 6 of the mining agreement provided:

On or before the date of this Agreement, the Principal
[i.e. MoEnCo] will:

(a)

(b)

deposit an agreed amount of security for the procurement

of the Plant, as required under this Agreement.
Alternatively, the Principal may elect to provide an
irrevocable and unconditional Bank Guarantee from a
financial institution and in a form acceptable to the
Contractor (Capex Security); and
deliver an irrevocable bank guarantee to the Contractor or
deposit a cash deposit in the amount of USD1,000,000
(One Million United States Dollars) to secure the payment
of the Contractors Monthly Progress Payments (the
Progress Payment Security),
(together the Capex Security and the Progress Payment
Security are the Security)
in the amounts and in accordance with details set out in
Appendix 4; and

(c) deliver to [Leighton], a company guarantee, for the benefit

of the Contractor, in the form set out in Appendix 4, from
the Guarantor [i.e. MECL], to guarantee the performance
of Principal of its obligations under this Agreement.

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Pursuant to clause 6(a) and (b) Leighton had obtained

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two lots of security: the CAPEC Security in the sum of US$3 million
and they also obtained Progress Payments security in the sum of
another US$1 million. Pursuant to clause 6 (c) they were entitled to

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a company guarantee from MECL. The requirement was not to

deliver an unconditional company guarantee, or an irrevocable

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company guarantee, but a company guarantee for the benefit of

Leighton. This was the genesis of the guarantee in question.

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Banking and Non-banking Cases

23.

Mr Pennicott referred to his summary of relevant

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authorities appearing in Appendix II. From the 14 listed cases there,

he pointed out 4 cases which did not involve a banking context, that
is, they did not involve banking or insurance or financial institutions.

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Those four cases were 2 cases of the Court of Appeal in England and
Wales, Marubeni and IIG Capital decided in 2005 and 2008
respectively. Then there were 2 First Instance decisions, Vossloh

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decided in 2010, and Carey Value decided in 2011. He submitted

that the principle to be derived from those 4 cases was that where

one did not have a banking context, which was the situation here in
our case, there was a strong presumption against an instrument being
anything other than a true guarantee. It was a presumption which

was rebuttal and, indeed, was indeed rebutted in the IIG case.

24.

In Vossloh, Sir William Blackburne expressly cautioned

against adopting the principles in banking cases in a non-banking

context.

Obviously each case had to depend upon the true

construction of the actual words that were used in the instruments

that were under consideration. In those cases, where on demand

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performance bonds had been held to exist, the wording was very
strong. Indeed, the instruments in Vossloh, Marubeni, and Carey

Value were much more strongly worded than the company guarantee.

25.

In IIG Capital, the Court of Appeal in England and Wales

determined that, although this was a non-banking instrument,

nonetheless it was an on demand guarantee. The crucial points were

the express terms that the guarantor as principal obligor and not
merely as surety unconditionally and irrevocably guarantees to the

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lender; and more importantly, Guaranteed Monies were defined as:

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all moneys and liabilities which are now or may at any time
hereafter be due, owing or payable or expressed to be due owing
or payable

Secondly, clause 4.2 in the IIG Capital provided:

A certificate in writing signed by a duly authorised officer or
officers of the lender stating the amount due and payable to
the Guarantor under this guarantee shall, save for manifest error,
be conclusive and binding on the guarantor.

By reason of the aforesaid, the strong presumption that was accepted

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to exist was rebutted.

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26.

In Marubeni, the sale and purchase agreement provided

for a document described as a guarantee to be issued; and a letter

signed by the Mongolian Finance Minister was provided which
stated:

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The undersigned Ministry of Finance of Mongolia

unconditionally pledges to pay you upon your simple demand all
amounts payable under the agreement if not paid when the same
becomes due.

Despite the reference to unconditional pledge and simple

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demand, the Court of Appeal in England and Wales had no

difficulty concluding that this was not an on demand bond but a
guarantee. In his judgment, with which the other members of the

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Court of Appeal agreed, Carnwath LJ stated:

30. Turning to the MMOF letter, the starting-point in my view
is that it is not a banking instrument, and it is not described,
either on its face or in the supporting legal opinion letter, in
terms appropriate to a demand bond or something having similar

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legal effect. The legal opinion describes it as a guarantee. The

terminology is not of course conclusive. However, I agree with
Cresswell J that, if MHK had wanted the additional security of a
demand bond, one would have expected them to have insisted on
appropriate language to describe it, in both the instrument itself,
and in the legal opinion. The absence of such language, in a
transaction outside the banking context, creates in my view a
strong presumption against MHKs interpretation.
31. The question then becomes whether there are sufficient
indications in the wording of the instrument to displace that
presumption. Mr Howard relied on the words unconditionally
pledges and simple demand. However, they are qualified by
the following words, which indicate that the obligation only
arises if the amounts payable under the agreement (are) not paid
when the same becomes due. As Cresswell J said, this is
wording appropriate to a secondary obligation, that is one
conditional upon default by the buyer. It is true that in Esal
[1985] 2 Lloyds Rep 546 similar wording was held insufficient
to displace the ordinary effect of what was admittedly a
performance bond. However, here the starting-point is different,
and there is no reason for reading the words in other than their
ordinary meaning.
32. That sense is reinforced by the following pledge of the
full and timely performance and observance by the buyer of all
the terms and conditions of the agreement. It was not
suggested, as I understand it, that this indicates anything other
than a secondary obligation. It is true that the letter also contains
a primary obligation, in the form of an indemnity against cost or
damage resulting from the buyers default. However, this does
not assist MHK in this case, and there is no reason to treat this as
qualifying the ordinary meaning of the earlier part of the letter.

27.

In Vossloh, a parent company issued a guarantee in

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respect of a subsidiarys obligations under a master purchase

agreement whereby:
the Guarantor hereby unconditionally and irrevocably as a
continuing obligation and as principal debtor and not merely as
surety, as a separate, continuing and primary obligation:
(c) undertakes with each Beneficiary that whenever a
Guaranteed Party does not pay any of the Secured Obligations as
and when the same shall be expressed to be due, the Guarantor
shall forthwith on demand pay such Secured Obligations which
have not been paid at the time such demand is made,

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Notwithstanding such strong language, the learned Judge found that

this was not an on demand bond. In 36 of his judgment, Sir William
Blackburne said:

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As VAG is not a bank or in any way equivalent to a bank and

the 2009 Guarantee was not given in a banking or like context,
the jurisprudence discussed above raises a strong presumption
that the payment obligations undertaken by VAG do not
constitute a demand bond. What grounds are there in the context
and wording of the document for rebutting that presumption?

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He held, viewing the instrument as whole, that the presumption had

not been rebutted. This case was an example of the application of

the Marubeni strong presumption principle.

28.

In Wuhan Guoyu Logistics Group Co Ltd v Emporiki

Bank of Greece SA [2012] EWCA Civ 1629; [2013] BLR 74 (CA) the

defendant bank provided payment guarantee for the buyers

payment under a shipbuilding contract with the following wording:
hereby

IRREVOCABLY, ABSOLUTELY and UNCONDITIONALLY

guarantee, as the primary obligor and not merely as the surety , the
due and punctual payment by the BUYER of the 2nd instalment of
the Contract Price amounting to a total sum of United States

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Dollars 10,312,500.00 . The Court of Appeal held that this was

an on demand bond. Although this case was decided after Marubeni,
IIG Capital, Vossloh and Carey Value, none of those cases were

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referred to, probably because this was a banking case and those cases
were not. The decision in Wuhan Guoyu underscored the big
divergence in England and Wales between cases involving a banking
context and those that do not.

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Longmore LJ in his judgment in

Wuhan Guoyu stated:

25. The only assistance which the courts can give in
practice is to say that, while everything must in the end depend

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on the words actually used by the parties, there is nevertheless a

presumption that, if certain elements are present in the document,
the document will be construed in one way or the other.
26. It is exactly this kind of assistance that the editors of
Pagets Law of Banking have endeavoured to provide. In the
11th Edition of that work these words appeared under the
heading of Contract of Suretyship v demand guarantee:
Where an instrument (i) relates to an under-lying
transaction between the parties in different jurisdictions,
(ii) is issued by a bank, (iii) contains an undertaking to pay
on demand (with or without the words first and/or
written) and (iv) does not contain clauses excluding or
limiting the defences available to a guarantor, it will almost
always be construed as a demand guarantee.

27. The words will almost always be amount to a

presumption which was by then fully justified by the Court of
Appeal authorities,
28. Pagets presumption was in due course approved by this
court in Gold Coast Ltd v Caja de Ahorros del Mediterraneo
[2002] 1 Lloyds Rep 617 paragraph 16
29. The fact is that guarantees of the kind before the court in
this case are almost worthless if the Bank can resist payment on
the basis that the foreign buyer is disputing whether a payment is
due.

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On Demand Trigger of Liability

29.

The words on demand were not definitive or conclusive

as they appeared in many cases where the instrument was construed

to be a traditional guarantee.
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30.

The Court of Appeal in Dragages et Travaux Publics

(HK) Ltd v Citystate Insurance Ltd [2001] 1 HKC 196 (CA) had to
consider a performance bond issued by an insurance company to
guarantee due performance by subcontractor of its obligations under

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a subcontract in an airport project. The terms of the bond included

the following:
The Surety hereby irrevocably and unconditionally guarantees
to the Main Contractor the due performance by the SubContractor of its obligations under the Sub-Contract In the
event of default by the Sub-contractor of any of its obligations
under the Sub-Contract and upon demand in writing made by the
Main Contractor upon the Surety, the Surety shall satisfy and
discharge any claims, actions, damages, losses, charges, costs or
expenses whether directly or indirectly sustained thereby by the
Main Contractor up to an aggregate of the Bonded Sum.

It was held that the wording of the bond was not clear and
unambiguous enough to establish an on demand bond. Reading

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the bond as a whole, it was clear that the amount payable had to be
determined and the words payable on demand in writing did not
take the matter further. At page 199G of the judgment, Mayo VP

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stated:

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The correct approach to adopt in determining whether a bond is

an on-demand bond is to ascertain whether the commitment
engaged is conditioned upon the presentation of documents or
upon the actual existence of facts which are referred to in the
documents.

Carey Value concerned a deed of guarantee and

indemnity issued by parent company to guarantee its subsidiaries

obligations under a loan agreement with following wording:
[the defendant] irrevocably and unconditionally: undertakes
to be responsible as primary obligor for any failure by an Obligor
to perform, discharge, or fulfil for whatever reason any of the
Guaranteed Obligations when due and promptly on demand by
[the claimant]: (i) fully, punctually and specifically perform or
procure to be performed the relevant Guaranteed Obligations as
if it were itself a direct and primary Obligor to the [claimant] in
respect of such Guaranteed Obligations and be liable as if the
Transaction Documents had been entered into directly between
the Guarantor and the [claimant]; (ii) pay the amount of any
Guaranteed Obligation which has not been paid by the relevant

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Obligor and without any deduction or withholding

(clause 2.1(c)).

Clause 20.6 provided that the claimants certificate as to any

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amount under [the] deed was conclusive of the matters to which it

related.

The court held that the deed of guarantee and indemnity was not an

on demand bond. Any ambiguity in clause 20.6 should be resolved

in favour of the defendant, with the result that the word amount
referred to the amount advanced, not the amount due and payable.
Accordingly, the certificate under clause 20.6 was not conclusive

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evidence as to liability.
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Primary Obligation
32.

The words primary obligation or primary obligor

were not conclusive because the courts had reached the conclusion,

in many cases with such words, that the document in question was
not an on demand bond. The court had to construe the instrument as
a whole as the Court of Appeal did in Marubeni. If other clauses

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were inconsistent with a primary obligation, then the court would

conclude that the document is simply not clear enough, such that it
could not construe it as an on demand bond. JCG Finance Co Ltd v

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Group Life Investment Ltd & Anor, HCA 2417/2001 (27 March 2002,
unreported, Deputy High Court Judge To) concerned a private
company that entered into a Security Assignment of Shares as part

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of the consideration for a debt restructuring arrangement containing

the following terms:

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2.1. The Assignors covenant with the Lender that they will on
demand pay to the Lender The principal sum of $80 million
plus interest ;
2.2 The Assignors agree with the Lender as a primary
obligation, to indemnity and keep indemnified the Lender on
demand by the Lender from and against all and any losses,
damages, costs and expenses incurred by the Lender arising from
any failure by the Assignors to carry out, perform or meet any of
the Assignors obligation as particularised in clause 2.1 above.

On an Order 14 application, the court held, looking at other relevant

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clauses, that it was arguable that the instrument was not an on

demand bond notwithstanding the reference to primary obligation in
clause 2.2.

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The Guarantee in Question

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33.

Under Clause 1:
The guarantor guarantees to the contractor as a primary
obligation the due payment and performance.
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Those words had to be read conjunctively: due payment and due

performance by the principal. The question was what is due. Due
meant something that was required to be done or required to be paid

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and, therefore, was much more akin to the words that one found in a
guarantee. An on demand bond did not have such phraseology.

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34.

Clause 2 provided:
If the principal fails to pay or perform its obligations and
liabilities which are due and fails to comply with the mining
agreement the guarantor shall on demand

This clause also raised the question of what is due.

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35.

The third clause was the maximum aggregate liability

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clause:
The maximum aggregate liability of the Guarantor under this
Guarantee shall not exceed the maximum aggregate liability that
the Principal would have under the Mining Agreement

This clause clearly reflected the coextensive principle as the clause

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equated the liability of MECL and MoEnCo and was indicative,

therefore, of a contract of guarantee. If the plaintiff made a demand
which was in excess of the maximum aggregate liability, both the

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guarantor and the subsidiary could run a defence that the demand
that has been made was in excess of the maximum aggregate
liability, and the ability to do so was a contrary indication to the
company guarantee being an on demand performance guarantee. The
clause militated against the company guarantee being an on demand

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bond because it would be necessary to look at the underlying

transactions before MoEnCos liability could be determined.
36.

The fourth clause was the discharge clause:

This Guarantee shall come into full force and effect when the
Mining Agreement comes into full force and effect. This
Guarantee shall continue in full force and effect until all the
Principals obligations and liabilities under the Mining
Agreement have been discharged, when this Guarantee shall
expire and shall be returned to us, and the Guarantors liability
hereunder shall be discharged absolutely.

This was indicative of a guarantee as one needed to ascertain

L
M
N
O
P
Q

whether MoEnCos obligations and liabilities have been discharged

in order to determine whether the company guarantee has been
discharged.
37.

R
S

The fifth clause stated:

T
U

This guarantee is in addition to any other security which the

contractor may at any time hold and may be enforced without
first having recourse to any such security or taking any steps or
proceeding against the Principal.

B
C

This clause is not a clear indication that the company guarantee

created a primary obligation and was an on demand bond. The clause
was commonly found in guarantees and was neutral, and did not

D
E

deprive, in any way, the guarantor from any defences which would
have been open to the principal.

F
G

38.

Clause 6 dealt with variations and amendments. This

clause was commonly inserted in guarantees to negate the rule in

Holme v. Brunskill that a material variation in the terms of the

H
I

guarantee would discharge the surety.

J

Leightons Reply Submissions

39.

In his reply, Mr Brock made the following submissions.

40.

The security that had been provided under clause 6(1)(a)

and 6(1)(b) were modest amounts and it was established in the

L
M
N

evidence that they had been exhausted.

O

41.

He could see that there was the presumption in Marubeni

against a performance bond in the non-banking scenario but he

emphasised the reasoning of the court in IIG Capital, where in a
non-banking scenario an instrument was construed to be a

Q
R

performance bond, as further analysed by Blair J in Carey Value at

S

24:
It has also been held that the absence of language appropriate to
a demand bond in a transaction outside the banking context

T
U

creates a strong presumption against the interpretation of the

instrument as a demand bond (see the Marubeni Hong Kong and
South China case [2005] 2 All ER (Comm) 289 at [30] and the
IIG Capital case [2008] 2 All ER (Comm) 1173 at [8]-[9]).
Plainly, the use of words such as on demand do not in
themselves have the effect of creating a demand bond (see the
IIG Capital case [2008] 1 All ER (Comm) 435 at [25]). On the
other hand, the avowed purpose of the instrument (Hyundai
Shipbuilding and Heavy Industries Co Ltd v Pournaras [1978]
2 Lloyds Rep 502 at 508) and the overall context of the
contractual arrangements (the BOC Group case [1999] 1 All ER
(Comm) 53 at 66) may be relevant in determining whether ondemand type liability has been created. Outside the banking
context, IIG Capital is an example of a case in which, on the
language in question, the presumption referred to in the
Marubeni Hong Kong and South China case was rebutted.

B
C
D
E
F
G
H

42.

The presumption arising from the maximum aggregate

liability in that clause was that each and every underlying obligation
was in full force and effect.

There was no need to prove them.

I
J

There was a disconnect between the underlying obligations and the

performance bond. The reference to due payment was no more
than saying that a matter was due and owing and did not require any

ascertainment or adjudication.
M

43.

Finally, in respect of the variation provision, Mr Brock

referred me to 25 of the judgment of Tuckey LJ in Gold Coast that

the presence of such a clause was not definitive of the question
whether the instrument was an on demand bond or a true guarantee.
It could have been included to avoid any argument that a variation of
the underlying contract would imperil recovery under the instrument
in question or it could have been inserted to ensure that the rule

N
O
P
Q
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applicable to true guarantees did not apply to this instrument.

S
T
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Decision
B

44.

I have concluded, on my construction of the instrument in

question, that the company guarantee is a traditional type of

guarantee under which the liability of the guarantor is dependent on

C
D

the liability of the principal.

E

Strong presumption in non-banking context

45.

There can be little dispute that in England and Wales, and

in Hong Kong, there exists a strong presumption, where an

instrument relates to an underlying transaction between parties in

different jurisdictions which is issued by a bank, contains an
undertaking to pay on demand, and does not contain clauses

I
J

excluding or limiting the defences available to a guarantor, that such

an instrument is an on demand performance guarantee.

Such a

guarantee would be almost useless if the bank could resist payment

on the ground that the foreign buyer was disputing whether or not a
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payment was due.

46.

I also accept that there exists in Hong Kong, as there

exists in England and Wales, a strong presumption that, in a nonbanking context, the payment obligation undertaken by a guarantor

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does not constitute an on demand performance guarantee in the

absence of clear and unequivocal language describing the instrument
as an on demand performance bond, or an on demand performance
guarantee, or some other term having similar legal effect.

It is

accepted that MECL is not a bank, or an insurance or financial

institution, but the parent company of MoEnCo.

S
T
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Factual Background
B

47.

My review of the factual background does not lead me to

conclude that the strong presumption that exists in this case has been
rebutted. It was not in dispute that Leighton would need some form

C
D

of security before it would commit its resources to performing the

mining agreement in Mongolia. Such need was equally consistent
with the provision of a guarantee from the parent company of

E
F

MoEnCo, which is an substantial concern publicly listed in Hong

Kong, as it was with the provision of an on demand performance
guarantee.
48.

G
H

Notwithstanding that the amounts provided as security

under clause 6(1)(a) and 6(1)(b) of the mining agreement were

I
J

modest when compared with the liability of MECL under the

company guarantee, the security that was required to be provided
under sub-clauses (a) and (b) was described to be an irrevocable

and unconditional bank guarantee and an irrevocable bank

guarantee or a cash deposit.

Sub-clause (c), however, only

spoke of the provision of a company guarantee in the form set out

M
N

in Appendix 4 of the mining agreement which was subsequently

executed as the company guarantee.

O
P

49.

Mr Brock made a strong point that the minutes of the

meeting of 2 June 2010 stipulated that MECL was also required to

provide a performance bond or a performance guarantee to Leighton

Q
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on behalf of MoEnCo. However, those words do not appear on the

company guarantee and, whatever might have been the intention of
the parties, absent such language in the company guarantee, the

S
T

minutes of meeting is insufficient, by itself, to rebut the strong

U

presumption that arises in this case, particularly given the contrary

indication that is to be found from a comparison of clauses 6(1)(a)
and (b) with 6(1)(c) of the Mining Agreement.

B
C
D

Primary Obligation
E

50.

If the obligation is expressed in an instrument to be a

primary obligation, then such a provision may go some way to

rebutting the strong presumption, which exists in a non-banking

F
G

context, that the instrument is a guarantee and not an on demand

performance guarantee. This is because in a contract of guarantee,
the surety assumes a secondary liability to answer for the debtor who

H
I

remains primarily liable; whereas in a contract of indemnity the

surety assumes a primary liability, either alone or jointly with the

principle debtor: Chitty on Contracts (31 st ed) Volume 2, p.1639, at

44-008. On demand performance bonds or performance guarantees
are, in essence, exceptionally stringent contracts of indemnity:

Chitty on Contracts (31 st ed) Volume 2, p.1694, at 44-009.

51.

Mr Pennicott made a strong submission that the words in

clause 2 of the company guarantee if the Principal fails to so pay or

perform its obligations and liabilities which are due and fails to
comply with the Mining Agreement, the Guarantor shall on demand
, supports the construction that proof of breach by the principal

P
Q

was required, notwithstanding that the obligation of MECL was

described as primary obligation.
52.

Similar wording appeared in Esal (Commodities) Ltd v

Oriental Credit Ltd [1985] 2 Lloyds Rep. 546 where the instrument,
issued by a bank and described as a performance bond contained a

R
S
T
U

clause stating that we undertake to pay the said amount on your

written demand in the event that the supplier fails to execute the
contract in perfect performance. The court did not accept the literal

B
C

meaning of this clause, as to do so would be inconsistent with the

commercial purpose of the performance bond issued by the bank to
enable the beneficiary to obtain prompt and certain payment, in a

D
E

context in which the bank was not concerned in the least with the
relations between the supplier and the customer: per Ackner LJ at
p.549.
53.

F
G

In Marubeni, the Court of Appeal held, distinguishing

Esal (Commodities) Ltd v Oriental Credit Ltd, that, in a non-banking

H
I

context, the words amounts payable under the agreement (are) not
paid when the same becomes due in the instrument in question, was

appropriate to a secondary obligation that was conditional upon

default by the buyer, notwithstanding that the instrument contained
the words unconditionally pledges to pay to you upon your simple
demand.
54.

L
M

As has been pointed out by the editors of Pagets Law of

Banking (11th Ed), as quoted by Longmore LJ in Wuhan Guoyu at

N
O

p.79, 26:
In construing guarantees it must be remembered that a demand
guarantee can hardly avoid making reference to the obligation
for whose performance the guarantee is security. A bare promise
to pay on demand without any reference to the principals
obligation would leave the principal even more exposed in the
event of a fraudulent demand because there would be room for
argument as to which obligations were being secured.

P
Q
R
S

55.

In the present non-banking context, the words primary

obligation are not, on my construction of this instrument, sufficient

T
U

to displace the strong presumption that applies in the present case.

Notwithstanding that an on demand performance guarantee is an
exceptionally stringent contract of indemnity under which the

B
C

guarantor undertakes a primary obligation, I accept and adopt the

observations of Blair J in Carey Value, at p.148, 22, that, in a nonbanking context: the difference between secondary liability and

D
E

primary liability is not in itself decisive In any case, the language

of primary and secondary liability is routinely found in the same
contracts, and is not in itself a guide to the content of the liability.

F
G
H

On Demand - Trigger of Liability

I

56.

The words on demand appear very often in traditional

contract of guarantee and do not assist Leighton to rebut the strong

presumption that arises in this case. In my judgment, if the trigger

of liability is connected to the breach of the underlying contractual
obligations of the principal, then the instrument is likely to be
construed to be a traditional guarantee. However, if the trigger of

L
M

liability is simply the demand and some other easily ascertainable

objective fact which does not require investigation or adjudication
by the court, then the instrument is more likely to be construed to be

N
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an on demand performance guarantee.

P

57.

Mr Brock urged me to apply the reasoning of the court in

IIG Capital as further analysed in Carey Value. However, in IIG

Capital, the instrument, in addition to containing a provision making
the guarantor a primary obligor who unconditionally and irrevocably

R
S

guaranteed due and punctual payment of the guaranteed money and

agreed immediately upon demand unconditionally to pay the lender

T
U

the guaranteed money, also contained a conclusive evidence clause

in that the guaranteed money was defined as including money and
liability due owing payable or expressed to be due, owing or

B
C

payable and, under clause 4.2, a certificate in writing signed by a

duly authorized officer, stating the amount due and payable shall,
save for manifest error, be conclusive and binding on the Guarantor.

D
E

The Court of Appeal rightly concluded that this conclusive evidence

clause put the matter beyond doubt.

A similar reliance on a

conclusive evidence clause in Carey Value did not succeed because

the court there held that the clause in question contained an
ambiguity and was not a conclusive evidence clause as to liability.
Accordingly, the strong presumption that applied in the non-banking
context of that case was not rebutted. No conclusive evidence clause
appears in the company guarantee, the subject of this action.

F
G
H
I
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The Clauses of the Company Guarantee

58.

My review of the other clauses referred to does not make

me conclude that the strong presumption that exists in this case has
been rebutted.

The maximum aggregate liability clause does not

assist me one way or the other. Whilst the equation of the liability of

N
O

MECL with the liability of MoEnCo conformed to the co-extensive

principle, the words in parenthesis at the end of the clause, that
MECL was liable under the company guarantee, as if each and every

P
Q

provision of the mining argument was valid binding and enforceable,

whether or not such was the case, did not conform with the
coextensive principle.

R
S
T
U

59.

The fourth clause supported the presumption that applied

in this case, because it stipulated that the MECL would be

discharged from liability and the guarantee when MoEnCos

B
C

obligations and liabilities under the mining agreement had been

D

discharged.

60.

The fifth clause, that the guarantee was additional to any

other security and may be enforced without first having recourse to

such other security, was neutral to the construction of the instrument

F
G

as either an on demand performance guarantee or a traditional

H

guarantee.
61.

Finally, I accept the submissions of Mr Brock that the

variations and amendments clause contained in clause 6 of the

I
J

company guarantee was not definitive of the question for the reason,
as explained by Tuckey LJ in Gold Coast, that it could have been
included to avoid any argument, whether or not the document in
question was an on demand performance guarantee or a traditional

L
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guarantee.
N

Costs
62.

After finding in favour of MECL on the Order 14A

application, I had indicated that I was minded to make an order that

the costs of the application be costs in the cause. However, after
hearing further argument, I decided to reserve costs and I directed

Q
R

the parties to exchange short written submissions on costs.

S

63.

My decision to reserve costs was in respect to all

applications before me, not simply the Order 14 application which I

T
U

had granted leave to Leighton to withdraw. Unfortunately, my order,

which was subsequently in engrossed and sealed on 16 July 2013,
contained an error in that it stated that the plaintiff had leave to

B
C

withdraw its summons filed on 15 April 2013 with costs to be in the

cause. I hereby correct the error that is contained in my sealed order
pursuant to the slip rule and under the inherent jurisdiction of the

D
E

court by replacing 2 and 3 of my order with the following

3 paragraphs:

F
G

2. Leave be granted to the plaintiff to withdraw its summons

3.

filed on 15 April 2013.

Costs of the applications under Order 14, 14A and 29 be

reserved.
4.

Parties to exchange short written submissions on costs of

no more than 2 pages, with a short chronology.
L

Written Submissions on Costs

64.

Instead of short and concise submissions on costs not

exceeding 2 pages I received an 11-page submission from MECL, a

10-page submission from Leighton and a 7-page reply submission

N
O

from MECL. I am tempted to impose sanctions for breach of my

order, but, given the matters raised in these written submissions, I

decline to do so.

65.

Although it is now increasingly common for the court to

adopt an issue-based approach in considering costs of the action

after trial, I decline to accede to the submission of MECL that the
fair and appropriate order for costs is for Leighton to pay MECLs
costs of and incidental to the Order 14A application in any event,

S
T
U

such costs to be taxed if not agreed. I order that the costs of the
Order 14A application be in the cause.

I decline to award a

certificate for 2 counsel on the Order 14A application.

66.

However, I am persuaded that the original Order 14

application and application for interim payment under Order 29,

should never have been brought, given the substantive defences
raised. Leighton knew or ought to have known that its claims were

E
F

seriously disputed. 11 of the 13 hearing bundles before me related to

the Order 14/Order 29 application.

It was only when Leightons

written submission was served, 5 days before the hearing, that the
parties and the court became aware that the only application being
pursued

was

the

application

under

Order 14A.

In

these

circumstances, it is only right that Leighton pays the costs of the

G
H
I
J

Order 14 and Order 29 application to MECL.

67.

I am asked to make an order that those costs be paid

forthwith, to be taxed on an indemnity basis, with a certificate for

2 counsel. I decline to do so for the reason that I am not familiar
with the matters raised on the Order 14 and Order 29 applications,

M
N

and I am unable to assess the merits of the parties respective cases

on the matters in dispute. I am not saying that MECL ought not to
be granted an order for costs to be taxed on an indemnity basis, with

O
P

a certificate for 2 counsel. I would wish to reserve that decision to

the trial judge who would be in a better position to gauge whether or
not Leightons conduct in bringing the Order 14 and Order 29
applications was so unreasonable that it ought to be ordered to pay
costs on an indemnity basis. Further, the trial judge would be better
able to assess whether the complexity of the matters raised justify a

Q
R
S
T
U

certificate for 2 counsel. For these reasons, I make an order that

Leighton pays the costs of the Order 14 and the Order 29
applications to MECL in any event; and I reserve to the trial judge

B
C

the decision of whether or not such costs ought to be taxed on a

party and party basis or on an indemnity basis, and whether or not a
certificate for 2 counsel ought to be awarded.

D
E
F
G

(Mohan Bharwaney)
Judge of the Court of First Instance
High Court

H
I

Mr Denis Brock, of King & Wood Mallesons, for the plaintiff

Mr Ian Pennicott and Ms Catrina Lam, instructed by Deacons, for the

defendant
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M
N
O
P
Q
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-1-

Appendix I
COMPANY GUARANTEE
THIS GUARANTEE (the Guarantee) is entered into on the 2nd of
June 2010.
By:
Mongolia Energy Corporation Limited, a company incorporated in
and in accordance with the laws of Bermuda of Clarendon House,
Church Street, Hamilton HM 11, Bermuda with company
number 15584 (the Guarantor);
IN FAVOUR OF:
Leighton LLC, a company incorporated in and in accordance with
the laws of Mongolia, having its registered office at Monnis Tower,
9th Floor, 1st Khoroo, Chinggis Avenue, Sukhbaatar District,
Ulaanbaatar, Mongolia, (the Contractor)
WHEREAS
(A) The Guarantor indirectly holds the entire ownership of
MoEnCo LLC, a company incorporated and duly
registered under the laws of Mongolia having its office
at Central Tower, 11th Floor, 2 Sukhbaatar Square,
Sukhbaatar District - 8 Ulaanbaatar 210620 Mongolia,
(the Principal).
(B) By a contract dated June 2, 2010 (the Mining Agreement)
made with the Principal and the Contractor, the Principal
has agreed to procure the provision of a guarantee in the
terms hereof.
(C) At the request of the Contractor, the Guarantor has agreed to
guarantee the performance of the Mining Agreement by
the Principal as set out herein.
IT IS HEREBY AGREED as follows:
In consideration of the Contractor entering into the Mining
Agreement with the Principal, and accepting this Guarantee pursuant
to the Mining Agreement, the Guarantor guarantees to the
Contractor, as a primary obligation, the due payment and
performance by the Principal of all the Principals obligations and
liabilities under and arising out of the Mining Agreement, including

-2-

the Principals compliance with all its terms and conditions

according to their true intent and meaning.
If the Principal fails to so pay or perform its obligations and
liabilities which are due and fails to comply with the Mining
Agreement, the Guarantor shall on demand of the Contractor pay
and/or procure performance of the obligation which arise from any
such failure for which the Principal is liable to the Contractor under
the Mining Agreement.
The maximum aggregate liability of the Guarantor under this
Guarantee shall not exceed the maximum aggregate liability that the
Principal would have under the Mining Agreement if each and every
provision of the Mining Agreement were valid, binding and
enforceable in accordance with its terms (whether or not such is the
case).
This Guarantee shall come into full force and effect when the Mining
Agreement comes into full force and effect. This Guarantee shall
continue in full force and effect until all the Principals obligations
and liabilities under the Mining Agreement have been discharged,
when this Guarantee shall expire and shall be returned to us, and the
Guarantors liability hereunder shall be discharged absolutely.
This Guarantee is in addition to any other security which the
Contractor may at any time hold and may be enforced without first
having recourse to any such security or taking any steps or
proceedings against the Principal.
This Guarantee shall apply and be supplemental to the Mining
Agreement as amended or varied by the Principal and the Contractor
from time to time. We hereby authorize the Principal and the
Contractor to agree any such amendment or variation, the due
performance of which and compliance with which by the Principal
are likewise guaranteed hereunder. The Guarantors obligations and
liabilities under this Guarantee shall remain in full force and effect
and will not be discharged by any allowance of time or other
indulgence whatsoever by the Contractor to the Principal, or by any
variation or suspension of the works and services to be executed or
provided under the Mining Agreement, or by any amendments to the
Mining Agreement or to the constitution of the Principal or the
Contractor, or by any other matters, including but not limited to, any
breach of the Mining Agreement by the Principal or any termination
of the Mining Agreement, whether with or without the Guarantors
knowledge or consent.

-3-

Appendix II
Cases involving instruments found to be On Demand Performance Bonds
1. Edward Owen Engineering Ltd v Barclays Bank International Ltd
[1978] QB 159 at 166G (string of performance guarantees for 10%
of contract price to build greenhouses in Libya English suppliers
guaranteed Barclays Bank, Barclays Bank guaranteed Umma Bank in
Libya and Umma Bank guaranteed Libyan buyers): Please confirm
that you will pay total or part of the said guarantee on first of our
demand without any conditions or proof ; We confirm our
guarantee payable on demand without proof or conditions
[emphasis added]
2. IE Contractors Ltd v. Lloyds Bank Plc and Rafidain Bank [1990]
51 BLR 1 (cited in Dragages at 204F : we undertake to pay you,
unconditionally, the said amount on demand, being your claim for
damages [emphasis added]
3. Cargill International SA v Bangladesh Sugar & Food Industries
Corp [1998] 1 WLR 461 (CA) (performance bond provided by a
bank on behalf of the seller covering 10% of total c&f value as part
of a contract for the sale and delivery of sugar):
we unconditionally and absolutely bind ourselves: I) To
make payment of USD526,273.15 to the corporation [the
defendants] or as directed by [the defendants] in writing without
any question whatsoever The Guarantee is unconditional
and it is expressly understood that the sole judge for deciding
whether the suppliers have performed the contract and fulfilled
the terms and conditions of the contract will be the [defendant]
...

4. Airport Authority Hong Kong v American

Company, HCA 17807/1999 (2 February 2000,
performance bond issued by Home Assurance
performance by a subcontractor of its subcontract
Kok Airport):

Home Assurance
unreported) (10%
to guarantee due
works at Chek Lap

If the Sub-Contractor shall be in default in respect of any of his

obligations under the Sub-Contract the Bondsman shall upon
demand by the Employer in writing and without proof of the
said default or conditions satisfy and discharge the amount
identified in the demand of any damages, losses, charges, costs

or expenses sustained by the Employer by reason of the default

up to the amount of the Bonded Sum [emphasis added].

5. Gold Coast Ltd v Caja de Ahorros del Mediterraneo & Ors [2001]
EWCA Civ 1806 (CA) (refund guarantee issued by defendant banks
to ship buyer):
we do hereby irrevocably and unconditionally undertake
(except as provided below) that we will pay to you within five (5)
days of your first written demand US$ together with
interest thereon at the rate of two per cent (2%), per annum over
LIBOR from the date of your payment of the instalment to the
date of our payment to you of amounts due to you under this
Guarantee if and when the instalment becomes refundable from
the Builder under and pursuant to the terms and conditions of
the Shipbuilding Contract.; This Guarantee is subject to the
following conditions We shall pay any amount payable under
this Guarantee upon receipt of a certificate issued by LLOYDS
BANK PLC stating the amount of the Instalment paid to the
Builder under the Agreements, the date of such payment that you
have become entitled to a refund pursuant to the Agreements and
that the Builder has not made such refund [emphasis added].

6. IIG Capital LLC v Van Der Merwe [2008] 2 All ER (Comm) 1173
(CA) at 8- 10 (documents described as deeds of guarantee
issued by directors in favour of company):
the Guarantor as principal obligor and not merely as
surety unconditionally and irrevocably guarantees to the Lender
the due and punctual payment of the Guaranteed Moneys and
agrees that, if at any time or from time to time any of the
Guaranteed Moneys are not paid in full on their due date it
will immediately upon demand unconditionally pay to the
Lender the Guaranteed Moneys which have not been so paid
[emphasis added]. (CI 2.1)
As an original and independent obligation under this Deed, the
Guarantor shall indemnify the Lender and keep the Lender
indemnified against any loss incurred by the Lender as a
result of a failure by the Borrower to make due and punctual
payment of any of the Guaranteed Monies (CI 2.2.1)
Guaranteed Monies were defined as: (i) all moneys and
liabilities which are now or may at any time hereafter be due,

owing, payable, or expressed to be due, owing or payable, to the

Lender from or by the Borrower [emphasis added]
CI 4.2: A certificate in writing signed by a duly authorised
officer or officers of the Lender stating the amount due and
payable by the Guarantor under this Guarantee shall, save for
manifest error, be conclusive and binding on the Guarantor for
the purposes hereof [emphasis added].

7. Wuhan Guoyu Logistics Group Co Ltd v Emporiki Bank of Greece

SA [2012] EWCA Civ 1629; [2013] BLR 74 (CA) (defendant bank
provided payment guarantee for buyers payment under
shipbuilding contract): hereby IRREVOCABLY, ABSOLUTELY
and UNCONDITIONALLY guarantee, as the primary obligor and
not merely as the surety, the due and punctual payment by the
BUYER of the 2nd instalment of the Contract Price amounting to a
total sum of United States Dollars 10,312,500.00
Cases involving instruments found to be Contracts of Guarantee
8. Tins Industrial Co Ltd v Kono Insurance Ltd [1988] 2 HKLR 36
(CA) (performance bond issued jointly by contractor and insurance
co as surety for building contract Held : a double or conditional
bond requiring proof of breach by contractor and damages):
Now the condition of the above written bond is such that if the
contractor shall duly perform and observe all the terms,
provisions, conditions and stipulations of the said contract on
the contractors part to be performed and observed according to
the true purport, intent and a meaning thereof, or if on default by
the contractor the surety shall satisfy and discharge the damages
sustained by the employer thereby up to the amount to the above
written bond, then this obligation should be null and void, but
otherwise shall be and remain in full force and effect.

9. Trafalgar House Ltd v General Surety Co [1996] 1 AC 199 (joint

bond given by subcontractor and surety company):
if the Subcontractor shall duly perform and observe all the
terms provisions conditions and stipulations of the said
Subcontract on the Subcontractors part to be performed and
observed according to the true purport intent and meaning
thereof or if on default by the Subcontractor the Surety shall
satisfy and discharge the damages sustained by the Main

Contractor thereby up to the amount of the above written Bond

then this obligation shall be null and void but otherwise shall be
and remain in full force and effect

10.
Dragages et Travaux Publics (HK) Ltd v Citystate
Insurance Ltd [2001] 1 HKC 196 (CA) at 199A-B (performance
bond issued by insurance co to guarantee due performance by
subcontractor of its obligations under a subcontract in an airport
project):
The Surety hereby irrevocably and unconditionally guarantees
to the Main Contractor the due performance by the SubContractor of its obligations under the Sub-Contract In the
event of default by the Sub-contractor of any of its obligations
under the Sub-Contract and upon demand in writing made by
the Main Contractor upon the Surety, the Surety shall satisfy and
discharge any claims, actions, damages, losses, charges, costs or
expenses whether directly or indirectly sustained thereby by the
Main Contractor up to an aggregate of the Bonded Sum.

Held : Wording of the bond was not clear and unambiguous enough to
establish an on demand bond. Reading the bond as a whole, it was
clear that the amount payable had to be determined and the words
payable on demand in writing did not take the matters further.
11.
JCG Finance Co Ltd v Group Life Investment Ltd &
Anor, HCA 2417/2001 (27 March 2002, unreported, Deputy High
Court Judge To) at 15 (private company entered into a Security
Assignment of Shares as part of the consideration for a debt
restructuring arrangement):
2.1. The Assignors covenant with the Lender that they will on
demand pay to the Lender The principal sum of $80 million
plus interest ; 2.2 The Assignors agree with the Lender as a
primary obligation, to indemnity and keep indemnified the
Lender on demand by the Lender from and against all and any
losses, damages, costs and expenses incurred by the Lender
arising from any failure by the Assignors to carry out, perform
or meet any of the Assignors obligation as particularised in
clause 2.1 above [emphasis added]

12.
Marubeni Hong Kong Ltd v Mongolian Government
[2005] 1 WLR 2497 (sale and purchase agreement provided for

document described as a guarantee to be issued; letter signed by

Mongolian finance minister was provided): the undersigned
Ministry of Finance of Mongolia unconditionally pledges to pay to
you upon your simple demand all amounts payable under the
Agreement if not paid when the same becomes due (whether at
stated maturity, by acceleration or otherwise) and further pledges
the full and timely performance and observance by the Buyer of all
the terms and conditions of the Agreement [emphasis added]
13.
Vessloh Aktiengesellschaft v Alpha Trains (UK) Ltd
[2010] EWHC 2443 (Ch) at 35 (parent company issued a guarantee
in respect of subsidiarys obligations under a master purchase
agreement):
the Guarantor hereby unconditionally and irrevocably as a
continuing obligation and as principal debtor and not merely as
surety, as a separate, continuing and primary obligation :
(c) undertakes with each Beneficiary that whenever a
Guaranteed Party does not pay any of the Secured Obligations
as and when the same shall be expressed to be due, the
Guarantor shall forthwith on demand pay such Secured
Obligations which have not been paid at the time such demand is
made,
(d) as a separate and independent stipulation, agrees that if any
purported obligation or liability of the Guaranteed Party which
would have been the subject of this Guarantee had it been valid
and enforceable is not or ceases to be valid or enforceable
against a Guaranteed Party on any ground whatsoever whether
or not known to any Beneficiary, the Guarantor shall
nevertheless be liable to the relevant Beneficiary in respect of
that purported obligation or liability as if the same were fully
valid and enforceable and the Guarantor was the principal
debtor in respect thereof and shall be paid or caused to be paid
by the Guarantor under this Guarantee upon demand; and
(e) as principal obligor and as a separate and independent
obligation and liability, indemnifies each Beneficiary against
any losses suffered by it from time to time in connection with or
as a direct or indirect result of the failure of a Guaranteed Party
to duly and punctually perform its terms, representations and
warranties, conditions, covenants and obligations contained in
the Relevant Documents to which it is a party or failure to duly
and punctually pay the Secured Obligations or as a result of the
whole or any part of the Relevant Documents being or becoming
void, voidable, unenforceable or ineffective as against that

Beneficiary for any reason whatsoever, irrespective of whether

such reason or any related fact or circumstance was known or
ought to have been known to that Beneficiary

14.
Carey Value Added SL v Grupo Urvasco SA [2011]
2 All ER (Comm) 140 (deed of guarantee and indemnity issued by
parent company to guarantee its subsidiaries obligations under a
loan agreement):
[the defendant] irrevocably and unconditionally: undertakes
to be responsible as primary obligor for any failure by an
Obligor to perform, discharge, or fulfil for whatever reason any
of the Guaranteed Obligations when due and promptly on
demand by [the claimant]: (i) fully, punctually and specifically
perform or procure to be performed the relevant Guaranteed
Obligations as if it were itself a direct and primary Obligor to
the [claimant] in respect of such Guaranteed Obligations and be
liable as if the Transaction Documents had been entered into
directly between the Guarantor and the [claimant]; (ii) pay the
amount of any Guaranteed Obligation which has not been paid
by the relevant Obligor and without any deduction or
withholding (cl 2.1(c)).

NB Cl 20.6 provided that the claimants certificate as to any

amount under [the] deed was conclusive of the matters to which
it related.
Held : The deed of guarantee and indemnity was not a demand bond.
Any ambiguity in cl 20.6 should be resolved in favour of the
defendant, with the result that the word amount referred to the
amount advanced, not the amount due and payable. A certificate
under cl 20.6 was not conclusive evidence as to liability.